Jean Claude Trichet said last Thursday that he would hold interest rates as are and that he could not see inflation coming under control until 2010 meaning that for the foreseeable future we just have to get used to rates not having the prospect of coming down. We felt that there may be a rate cut on the way in early 2009 but always on the back of this was the belief that if inflation didn’t come down sooner that it would be Q3/4 of 2009 before we saw a rate cut (potentially).
The current news is partially sabre rattling by the ECB, laying down the strong message (and rightly so) that inflation must be beaten, anything short of the message given by Trichet might send out the belief that if the market falls and inflation remains that we might get a few ‘market favouring’ decisions, this hasn’t happened so far and with any luck it will remain the case.
So for the mean time we are stuck with a 4.25% base rate, and it appears that what Trichet has said means that the much touted ‘rate drops’ by many an economist will not materialise. I was quoted in a Sunday paper stating that rates won’t drop and if anything the risk was on a hike more than a drop, although in this blog I was a little less militant, in any case it kind of tells me that sometimes ‘the economy depends on economists about as much as the weather depends on weather forecasters’.
So the best way to make a win out of this situation? For a start the ongoing steady rate outlook will mean that some fixed rates will be getting more attractive, in fact we have seen AIB, BOI, and IIB all drop their fixed rate prices. To a degree the mention of ‘2010’ by Trichet means that he is giving the market some indication at least of where he feels the rate future lies, fairly unusual for him! The other thing people can do is get the hell away from variable rates! If you are on a vairable rate you are paying above the odds with almost every institution, talk to your broker, get a better deal and pay less, it really is that simple! The downside is that you can’t get everything fixed by reading our news, you actually have to go to the effort of calling, getting some paperwork done and going through the process, having said that it is totally worthwhile if you can save a few grand!
The effect of this on the property market will mean further drops in prices, with no hope of a rate cut coming sellers would do well to price to sell fast, the fact of the matter is that we will be in a better place once we are on the far side of the adjustment, delaying the process is like taking a long long time to rip off a plaster rather than doing it quickly.